5 Questions Any Homeowner Needs to Ask Their Insurance Agent
Insurance is paramount for homeowners because it allows you to protect your residence and personal belongings against natural disasters, theft and other risks. At the same time, homeowners insurance can be a tricky topic for first- and long-time property owners alike. If you don’t purchase the right coverage, you may put your home and personal belongings in danger.
Ultimately, homeowners insurance can raise many questions for property owners. Lucky for you, we’re here to help you find affordable homeowners insurance that matches or exceeds your expectations.
Now, let’s take a look at five questions that every homeowner needs to ask their insurance agent.
How much coverage do I need?
To determine the right amount of homeowners coverage, you’ll need to differentiate between the replacement cost, actual cash value (ACV) and market value of your home.
The replacement cost refers to the amount it would take to replace your residence with a similar house or the exact same house if it was destroyed or damaged in today’s market. It accounts for the value of a home and the personal items stored in it—not the value of the land itself.
Comparatively, the ACV of your home refers to the replacement cost of your home, minus depreciation. This means that if you have an ACV policy in place and suffer a loss, your insurance company will use the aforementioned formula to calculate the payment.
To better understand ACV, let’s consider what would happen if you need to replace a home’s 25-year composition shingle roof. Under an ACV policy, the roof would depreciate at a rate of 4 percent per year. If your roof is 10 years old and needs to be replaced, your insurance company would subtract 40 percent (4 percent per year x 10 years) to estimate the ACV for your roof—and that’s without factoring in your deductible.
Let’s not forget about your home’s market value, either. This often serves as a great indicator of the value of your house if you add it to the current real estate market.
When it comes to homeowners insurance, it is always better to err on the side of caution. If you select homeowners coverage for the full replacement cost of your home, you’ll be better equipped to safeguard your residence and personal belongings.
To calculate the replacement cost of your residence, the Insurance Information Institute (III) notes you can multiply the square footage of your house by the local building costs per square foot. Or, if you need extra help to calculate your home’s replacement cost, you can always consult with an insurance agent.
What should my home insurance policy cover?
The III recommends purchasing a homeowners policy that accounts for the following factors:
- Structure of Your Home: It is important to buy coverage that accounts for the full cost to rebuild your residence at current construction costs, according to the III.
- Your Perils: Common perils covered by a homeowners policy include fire and smoke, lightning, windstorms and hail, explosions, vandalism and malicious acts, damage from an aircraft, car or vehicle, theft, falling objects, weight of ice, snow and sleet and water damage. Not every peril that threatens your home can be covered by homeowners insurance, but you’ll want to request the broadest coverage available.
- Your Personal Belongings: In many instances, a homeowners policy will provide coverage for your personal belongings for approximately 40 percent to 60 percent of the amount of insurance that you have on the structure of your home. Of course, you can always increase your personal belongings coverage if you store antiques, jewelry and other valuable items at home. Moreover, you can add special coverages for guns, watercraft and other belongings that are often limited in a homeowners policy.
- The Costs of Additional Living Expenses: Many homeowners policies provide coverage for about 20 percent of the replacement cost dwelling limit that accounts for additional living expenses (hotel fees, meals, etc.) if your home is untenantable. This coverage lasts until you run out of your additional living expense limit or you can return to your home.
- Your Liability: Liability coverage is included in a homeowners policy and covers you against bodily injury or property damage that you or family members negligently cause to other people, along with damage caused by pets. Typically, a homeowners policy will include a minimum of $300,000 worth of liability coverage.
The amount of homeowners coverage varies from property owner to property owner. Therefore, if you meet with an insurance agent, you can discuss your individual needs and find a policy that ensures you can get the right coverage.
Do I need flood and/or earthquake coverage?
Homeowners insurance does not provide coverage against floods and earthquakes. And if you live in an area that’s more susceptible than others to these natural disasters, you may want to increase your homeowners coverage accordingly.
Although flood and earthquake insurance may seem unnecessary at times, it is important to understand the benefits they can provide to property owners.
For example, even a single inch of water can cause property damage—regardless of whether your home is located in a floodplain. But with flood insurance in place, you’ll be able to protect your residence and personal possessions against flood damage at all times.
Most communities participate in the National Flood Insurance Program (NFIP), which is designed to provide homeowners with affordable coverage against floods. In addition, most flood insurance policies offer home coverage up to $250,000, along with personal property coverage up to $100,000.
If you decide that flood insurance is right for you, don’t wait until weather threatens to purchase it. Usually, there is a 30-day waiting period from the time you buy flood insurance until your policy takes effect. This means if you buy flood insurance a few days before a big storm arrives, you won’t be covered.
The Federal Emergency Management Agency (FEMA) points out there are two exceptions to the 30-day waiting period for flood insurance:
- If the flood insurance purchase is completed in connection with the initiation, increase, extension or renewal of a home loan, there is no waiting period.
- If the initial purchase of flood insurance is completed during a 13-month period following the effective date of a revised flood map for a community, there is a one-day waiting period.
Meanwhile, earthquake insurance may prove to be exceedingly valuable if you live in a Western state, the New Madrid seismic zone or other areas that are susceptible to catastrophic earthquakes.
California and several other Western states require homeowners to purchase earthquake coverage to supplement their homeowners policies. If you decide to purchase earthquake coverage, you may be able to incorporate it into your current homeowners policy, or you can purchase earthquake insurance as a standalone policy.
What are some of the factors that will impact my rates?
Many factors impact homeowners insurance rates, including:
- Coverage Amount: How much coverage you need for your home may dictate your homeowners insurance premiums.
- Claim Frequency: The more homeowners claims that you submit, the more likely it becomes that your premiums will rise.
- Fire Safeguards: The distance between your home and a local fire station may impact your premiums.
- Home Condition: If you own an old home, you may be required to pay higher premiums than other homeowners.
- Location: If you live in an area that is prone to natural disasters, you may be forced to pay higher premiums than others.
Consider the factors that will affect your homeowners insurance rates closely, and you can purchase coverage that protects your home and personal belongings.
How can I save money on my homeowners insurance?
There are many quick, easy ways to save money on homeowners insurance, such as:
- Consult with Multiple Insurance Providers: There is no shortage of homeowners insurance providers nationwide. In fact, an independent insurance agent can help you shop for home insurance from multiple carriers so you can find the right coverage at the lowest price.
- Bundle Your Home and Car Insurance Policies: If you purchase your homeowners and automotive insurance from the same insurance company, you may be able to save between 5 percent and 15 percent versus buying both policies separately.
- Bolster Your Home Security: With a home security system in place, you may be able to reduce your homeowners insurance premiums by up to 20 percent.
- Track Your Credit Score: Many insurance providers will evaluate your credit score prior to providing homeowners coverage. Thus, if you maintain a good credit score, you can improve your chances of getting a lower premium.
- Review Your Homeowners Policy Regularly: Allocate the necessary time and resources to assess your homeowners policy at least once a year. That way, you may be able to reduce or cancel various coverages as needed.
For those who are on the fence about homeowners insurance, it never hurts to consult with an independent insurance agent. This insurance professional can teach you about homeowners coverage and learn about your individual needs. Plus, he or she can respond to your concerns and queries and help you make informed purchase decisions.
Ready to get the right homeowners insurance to protect your house and personal belongings? Consider the aforementioned questions, and you should have no trouble finding the ideal coverage.
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